Despite the restructuring in the automotive space, manufacturing continues its competitive streak with a few bright spots indicating a gradual uptick, according to IBISWorld’s Top 100 Manufacturers List for 2017. Syed Shah reports.

Recently, the Advanced Manufacturing Growth Centre (AMGC) stated in its report: Advanced Manufacturing – A Definition for a New Era, that the Australian manufacturing industry is larger and more dynamic than currently estimated. According to the Ai Group, for the last quarter of 2017, the performance of manufacturing index (PMI) of Australia looks to be on the uptick.

So, while manufacturing looks to be shrinking in its GDP contributions year on year, there is certainly brighter times ahead. Historically, the manufacturing industry has always been an extremely competitive industry, and despite a difficult 2016 and challenges to the local economic climate for the industry in 2017, the outlook is a positive one – at least in the longer term.

Australia’s traditional manufacturing industry will continue to thrive with more companies embracing newer advanced manufacturing technologies and the power of the IIoT. This is despite the continued lack of outstanding winners in the list.

Bao Vuong, senior industry analyst with IBISWorld, one of Australia’s richest sources of business information, says most manufacturing sectors are in the process of restructuring their business processes with more automation and adoption of advanced techniques to boost general productivity.

Vuong sees the decline as marginal, and says like last year, there is a lot of volatility in the market with several factors as reasons these include the value of the Australian dollar and government policies, both at federal and state level.

“Compared to the previous year, there is a mix in the number of companies in the Top 100 list who have dropped and increased their revenue. This is due to economic volatility locally and globally, but the trend is moving downwards,” Vuong told Manufacturers’ Monthly.

Food manufacturing seems to have bucked the trend from last year with the meat industry benefitting from the increased demand in high quality or premium meat that is popular in the East Asian market. This is because consumers in the East Asian region are swayed by the notion of what they perceive to be high-quality Australian products. As a result, some companies are expanding into the Asian export market even further.

“Australian beef is just seen as more high quality as compared to the beef that they (East Asian market) can obtain in other countries,” said Vuong.

For the rest of the F&B products, a lot of the companies are focusing on the general Asian market, which also points to consumers’ perception of the high quality associated with Australian products like milk powder. According to Vuong, people from China tend to prefer Australian milk powder because they don’t trust the quality of their locally manufactured milk products.

IBISWorld sees local manufacturers competing with low-cost imports and this includes the automotive manufacturing sector. And because of these low-cost imports, they see it as more strategic to move their production overseas into certain Asian countries where the overhead costs are a lot lower compared to manufacturing in Australia.

Even though companies are looking at Asian export markets, the weak Australian dollar has contributed to higher demand for locally manufactured goods in export markets as the weak dollar boosts the attractiveness of the exported goods.

“In tandem with the increased use of robotics and 3D printing that will help the manufacturing sector turn around gradually, new technologies will also limit that decline,” said Vuong.

With the increased use of automation these days, companies are trying to reduce their reliance on labour and improve their profitability especially when they are in competition with low-cost imports. IBISWorld expects manufacturing to turn around within the next five years but for the moment, the expectation for the sector is to only climb moderately.

The Australian government has provided support measures such as the advanced manufacturing fund for local manufacturers here especially for the small-scale manufacturers that would struggle in this competitive environment.

“This will hopefully help limit the decline in this sector and ensure that small scale manufacturers have a bright future in a highly competitive environment,” said Vuong.

In other areas, the transition of the mining sector from investment to production has led the mining and construction sectors to have some losers in terms of negative revenue swings in their latest financial reports.

“Siemens, who provide technology equipment and solutions for the sector has seen their revenue decline because of the transition of the mining sector from investment to production over the past two financial years. This trend has followed across most other technology providers for the mining sector and this transition has affected their revenue,” said Vuong.

“For the construction industry, they seemed to have scaled back in terms of infrastructure and residential building projects. An example would be Raytheon, where their decrease in revenue was also due to the decrease in construction contract,” said Vuong.

Defence companies are doing particularly well in 2017 because of the rise in defence contracts.
Because of this, Australia’s procurement for international shipbuilding has also seen the sector grow to $400 million recently. “Anyone that manufactures advanced components for defence contracts have increased their revenue,” Vuong said.

Bucking the trend

In the face of increasing competition from low-cost imports, IBISWorld expects companies to face downward pressure in terms of profitability with imports intensifying in the manufacturing sector.

Prices are expected to be a major point of competition for those that can offer the lower prices, especially those from Asia where it will force local manufacturers to slash prices and profitability to keep up with these low-cost Asian manufacturers.

“Conversely, if some of these manufacturers that produce niche goods, like meat processing manufacturers that produce high-quality Australian beef, they can have higher profitability levels. They can then charge a premium price for these goods due to the quality because these products are considered differentiated from the market itself. In general, the intensified market competition will force prices down and put a lot of pressure on these manufacturing operators,” said Vuong.

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